Case study: choosing an inventory method
Who asked: Morrow Shelf Goods owner.
Question: How much does FIFO change pretax profit versus periodic average when costs rise?
Data: Two inventory layers, one sale and a stated illustrative tax assumption.
Done: A cumulative calculation sheet and checked profit comparison.
Morrow Shelf Goods sells a single fictional product during a month of rising purchase costs. The owner wants to understand how FIFO and periodic weighted average change reported inventory and gross profit without changing cash. Use one growing worksheet so every later comparison retains the calculations you already made.
Opening stock is 100 units at $10, a later purchase is 100 units at $14, and 150 units are sold for total revenue of $3,000. There are no other costs in the case. The supplied 20% tax assumption is illustrative arithmetic, not a real tax rate or a recommendation. LIFO is excluded from the choice because the owner wants comparability with IFRS reporting. The final checked result quantifies the pretax profit difference.
FIFO COGS uses 100 units at 10 and 50 at 14; weighted average uses 150 units at 12.
Compare inventory cost methods with one cumulative evidence sheet.